Patrick Therriault, Columnist
Ideology: Republican | Writing from: Connecticut
Late last week, negotiation teams from both South Korea and the United States tentatively accorded to a draft of revisions to the free trade agreement (FTA) between the two sovereign nations. Trade talks originally opened in 2006 but stalled one year later on concerns over tariffs on automobiles and agricultural output. If ratified by South Korea’s National Assembly and the U.S.’ newly elected Senate in January, the informally named “KORUS” final agreement would become the U.S.’ first FTA with a developed Asian economy and the most significant agreement since the North American Free Trade Agreement (NAFTA) in 1993. South Korea and the U.S., the world’s number 15 and number one economies, have much to gain through the recently announced agreement. As with all FTAs, individual sectors, companies and businesses will face greater competition from international rivals, and this has ignited lobbyists, local ire and political outrage within both nations. But could the agreement’s global significance, with negotiations concluded against a backdrop of unease between neighboring North Korea on the peninsula, be the deal’s largest caveat?
Bilateral Trade with South Korea, and why it Matters
Although South Korean companies such as LG, Hyundai, and Samsung have long been household names in the U.S., imports from South Korea have historically lagged those of other trading partners. According to the U.S. Bureau of Economic Analysis’ (BEA) recently released International Trade in Goods and Services report, the U.S. has imported 39.9 billion dollars in goods and services from South Korea year-to-date through October 2010. By way of comparison, the U.S. imported 98.0 billion dollars from Japan, 299 billion dollars from China, and 229.4 billion dollars from NAFTA partner Canada over the same period. The level of U.S. exports, which President Obama has declared he will double by 2015, to South Korea are even lower at 32.2 billion dollars, creating an unfavorable trade imbalance between the two nations.
The recently delivered agreement aims to significantly boost trade between the two economies, by reducing tariffs on goods and services. Automobiles were one area of contention in the original negotiations. While steep tariffs have always cut heavily into U.S. automakers’ access to the lucrative South Korean market, Korean manufacturers have gained access to the world’s second-largest automobile market in a big way over the past decade. The ratio of automobile trade between the two nations is nearly 13:1 in favor of Korea, according to the BEA. The agreement calls for South Korea to cut its tariff on U.S. cars immediately in half, which Ford Motor Company CEO Alan Mulally remarked would, “…provide Ford greater confidence that we will be able to better serve our Korean customers.” The agreement also slashed Korean tariffs on U.S. agriculture products, which will inevitably lower prices in one of the world’s most expensive food markets.
Praise for the deal has also come from industry leaders in both of the nation’s maufacturing sectors. In addition to Mr Mulally at Ford, Boeing Co’s Chairman and CEO Jim McNerney remarked, “This agreement is a U.S. jobs creator. It sets the stage for a dramatic increase in U.S. exports of manufactured goods, agricultural products and services to a dynamic and growing Korean economy.” On the other side of the Pacific, Hyundai Motor Corp released a statement simply saying, “We welcome the agreement,” while Samsung Electronics denied that the agreement would positively impact their own company, but “believes the KORUS FTA will subsequently benefit Korea’s economy.”
Naysayers and Other Motives
Though there are obvious potential benefits for both nations’ economies on balance, some individual sectors will face increased competition during a time when they can least afford it. This inevitability is raising voices in defense of domestic voters on both countries. Senator Max Baucus (D-MT), has stated that he was “deeply disappointed” with the resolution on U.S. beef exports in the final agreement and is “deeply committed to righting this wrong and will work with the administration…to ensure that America’s ranchers and farmers are not left behind.” Recall that ranching and farming are how a great number of Montana residents make their living. His comments, however, seemed out of step with President Obama, who has stated the agreement would add 70,000 jobs to the agricultural and manufacturing sectors of the U.S. economy and boost exports. In South Korea, too, both ruling and opposition party members have formally requested an apology from the national trade ministry for altering the 2007 agreement, which apparently the organization had promised not to break.
While comments like those would normally bode poorly for the agreement’s passage through the South Korean National Assembly and U.S. Senate, there is a confounding factor in calculating KORUS’ fate. The global significance that would be projected by a free trade deal between South Korea and the U.S., during a time when international partnerships on the Korean Peninsula, has become increasingly important. This has not been a particularly tranquil year for the Koreas, and going forward it would seem both states are planning to rely even more heavily on their heavyweight protectors. North Korea, as it tenuously transitions power from current-leader Kim Jung-Il to his son, has increasingly relied on China to protect its interests. This in turn has left South Korea with a desire to strengthen its relationship with the U.S. The Economist aptly wrote in last week’s edition, “That North Korea has deadly warheads aimed at Seoul means South Korea needs friends.” What better way to make international friends than to sign an FTA with the world’s leading military and economic superpower.
Is there a direct connection between the tensions along the 38th parallel and the finalizing of a long-stalled FTA with the U.S.? Most likely. But there were certainly other complexities on both sides of the Pacific, including the direct involvement of lobbyists from both nation’s leading corporations as well as the bombastic personality of the controversial South Korean President, Lee Myung-bak. From an American standpoint, the flare-up between the two Korean neighbors certainly conveniently accelerated the process. However, going forward, an FTA will necessarily tighten the South Korea-U.S. relationship, while significantly complicating the latter’s engagements with China and the world organizations. The global significant of this FTA is being pushed aside in favor of squabbling over more selfish arguments on the agreement’s fairness, as usual. Perhaps the question people should be asking is not whether KORUS is good for American ranchers and Korean carmakers, but whether it will further entangle the U.S. on the Korean peninsula, while damaging its relationship with the world’s second largest economy and future credibility in pushing for North Korea’s nuclear disarmament.